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Now it's Kaleidescape's turn to cry [UPDATED]

August 13, 2009 | 12:01 am

In back-to-back rulings this week, a federal judge in San Francisco and a California appeals court in San Jose have blocked or threatened two products that let movie buffs shift their collections from plastic discs to hard drives. The MPAA hailed the rulings against RealNetworks' RealDVD software and Kaleidescape's home movie servers as victories for the rule of law, but what was really at stake was the studios' influence over how their products are consumed. By defeating Real and Kaleidescape in court, the studios and the DVD Copy Control Assn. (the inter-industry group that sued Kaleidescape) have made it harder for companies to develop new ways for people to watch Hollywood fare at home. And in doing so, Hollywood is attacking the perceived value of its products and cutting off potential outlets for growth.

The concurring opinion by Judge P.J. Rushing in the Kaleidescape case outlined the pointlessness of the DVD CCA's insistence on enforcing the letter, rather than the spirit, of its contract with the company.

Kaleidescape makes luxury goods -- so costly, Rushing wrote, that customers spend almost $30 to store a movie even on its entry-level products. Those products allow no duplication of movies beyond the copy stored on the user's Kaleidescape server. Nevertheless, the DVD CCA insisted -- for sound legal reasons, the appeals court ruled -- that its contract compels licensees such as Kaleidescape to play movies only from the physical disc (technically, to use the keys on the physical disc to unlock the encryption that protects the movie).

In contrast to a Kaleidscape customer, Rushing noted, the owner of a cheap computer with readily available DVD-copying software "can not only keep a permanent copy on his hard drive for convenient retrieval but can burn an unlimited number of standalone, unprotected copies to dispose of as he sees fit."

The DVD CCA argued that unless the studios were assured that their movies would be protected against piracy, they wouldn't release them on DVD. But Rushing observed that the Kaleidescape system doesn't exist to help people circumvent the electronic locks on DVDs; it exists to help them enjoy the movies in their collection. Here's a long excerpt from his concurrence:

The essential function of the product is to put the owner's movie collection at his fingertips, as he has long been able to do with his music. When he decides to watch a movie, he need no longer leave his easy chair to pore over shelves, or dig through piles, of disks. He need no longer cross to his entertainment system, place the disk in a DVD player, return to his chair, and wait for the disk to load. He need only sit down before his television and browse electronically through his titles until he finds one he wants to watch. Further, he will never have to wonder again where he, or one of his guests or children, mislaid the family copy of Gone With the Wind. All his movies are securely stored on a hard drive, waiting to be summoned at the touch of a button. The system also offers the capability of viewing his entire collection all over the house--wherever a satellite "player" is connected to the “server” by a secure Ethernet cable--which means that guests or family members can select and view the movies of their own choice, also at the touch of a button. That, not content theft, is the purpose and selling appeal of the system. It is a high end system in the category as to which the proverb says, “If you have to ask how much it costs, you can't afford it.”

As I noted in my RealDVD post, the studios have slow-rolled efforts by the tech and consumer-electronics industries to make this sort of experience possible for consumers. One issue is how to stop people from making copies of the discs they rent, a hurdle that seems easy enough to overcome (my suggestion, offered at no charge to Hollywood: put a serialized code in DVD boxes that can be used only once to authorize a rip).

At any rate, the lack of an industrywide approach has left individual studios making ad hoc efforts to help consumers create home movie servers. These have taken the form of discs that come with "bonus copies" that can be transferred to a computer. But those copies employ multiple incompatible DRMs, leaving buyers to sort out which ones will work on the equipment they own. The easiest option for consumers is to use software to remove the encryption on DVDs and make their own bootlegs, although they have to do so with programs that are illegal to make and distribute in the U.S. In other words, innovation isn't stopped, it's pushed underground. Is that really where the MPAA wants it to be? Wouldn't the studios rather have companies like Kaleidescape and RealNetworks as their partners?

One irony is that enabling people to shift movies from a plastic disc to a home server will make the discs more valuable. In fact, it could be a way to promote disc buying (which has high profit margins)rather than renting (which has slimmer margins). With people souring on the DVD format, and Blu-ray not yet able to offset the decline, why not try to pump some new life into disc sales? Why can't the studios acknowledge that the illegal copying cat is already well out of the bag and that it's time to come up with a compelling legal alternative?

Update, Thursday at 5 p.m.: Here's Kaleidescape's official response, which arrived via e-mail:

We are surprised and disappointed by the Court of Appeal's decision and by their rejection of existing California contract law.

In the 2007 trial, the DVD CCA claimed that Kaleidescape breached the CSS License Agreement and in particular, a document called the "General Specifications". Kaleidescape successfully argued at trial that this document was not part of the contract since it was never referenced in the CSS License and was not provided to Kaleidescape until after the CSS License had been entered into. Kaleidescape also presented evidence at trial that, even if the General Specifications were part of the CSS License, Kaleidescape complied with it. In 2007, the trial court determined that the General Specifications were not part of the contract, but, the trial court did not clearly rule on whether we complied with it. The Court of Appeal has now ruled that the document is part of the contract, but said nothing about whether or not Kaleidescape complies with it and has left that determination to the new trial court. The Court of Appeal did not issue an injunction against the sale of our products. The second trial will take place probably in a year or two, unless the California Supreme Court agrees to review the Court of Appeal's decision. We will continue to fight, and we expect to prevail.

In the meantime, Kaleidescape Systems remain 100% licensed and legal. We will continue selling Kaleidescape Systems, developing innovative products, and providing excellent service to our customers, including Movie Guide, Music Guide, automatic software updates, and automatic service alerts. The Blue-Laser Player is still on schedule for release in 2009.

-- Jon Healey

Healey writes editorials for The Times' Opinion Manufacturing Division.

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